Getting smart about connected home devices

The futuristic home envisioned by the iconic TV show “The Jetsons,” in which fully cooked meals instantly pop out of the oven and appliances are voice-activated and interconnected, is inching closer to reality.

From smart devices that monitor energy use and secure the home to kitchen appliances that give you real-time insight into the nutritional value of the food you eat, the connected home is no longer the dream of cartoons.

In fact, VCs are funding a slew of new technologies that are bringing the connected home into real life.

The home automation market received is biggest boost to date in January when Google agreed to buy Nest Labs, the maker of smart thermostats, for $3.2 billion. If VCs were hesitant to fund home automation startups before the acquisition, they certainly changed their tune after it.

“Nest proved that there is significant consumer interest in home automation and that these companies can generate huge multiples,” said Jeff Clavier, managing partner at SoftTech VC.

From the start of 2012 to the end of 2013, connected home startups raised $468 million across 56 deals, according to research firm CB Insights. But that’s just the appetizer as more venture firms set their sights on the growing market.

Microsoft Ventures, along with American Family Insurance, recently announced a new accelerator program focused on next-generation home automation startups that can help create safer and smarter homes. And Cisco Investments, the venture arm of Cisco, recently allocated $150 million to Internet of Things (IoT) investments, with a particular focus on devices aimed at the home.

Other venture firms are also in hot pursuit of the home automation market, which is projected to hit $44 billion by 2017, according to wireless industry group GSMA.

Even average consumers are contributing their investment dollars to a variety of cool home automation startups. Canary, a home safety device that contains a video camera and multiple sensors that track everything from motion, temperature and air quality to vibration, sound, and activity, secured nearly $2 million on crowd-funding site Indiegogo.

And Lockitron locked down more than $2 million on Kickstarter for its smart phone-powered wireless deadbolt.

Other recent venture investments include:

  • August, a maker of smart locks that allows homeowners to remotely lock and unlock their doors, raised a total of $10 million from Maveron, Rho Ventures, SoftTech VC and others.
  • Quirky Inc, which is developing a line of smart home appliances, raised nearly $80 million from investors, including Andreessen Horowitz and General Electric.The Orange Chef, a maker of internet-enabled kitchenware, is backed by Google Ventures and SparkLabs Global Ventures.
  • PetNet, which developed a “smart feeder” that uses sensor technology and learning algorithms to assess the dietary requirements and daily caloric intake of pets, raised $1.125 million in seed funding from Kima Ventures, Grishin Robotics, SparkLabs and Launch Capital.
  • SmartThings, a software play that aims to be the central hub for all smart devices in the home, took in $12.5 million in Series A funding led by Greylock Partners before it was recently purchased by Samsung.
  • Revolv, another startup that hopes to become the main hub of the connected home via its Universal Remote, landed $4 million from the Foundry Group.
  • Mark One, a San Francisco-based maker of the smart cup Vessyl, raised $3 million in seed-stage funding co-led by Felicis Ventures and Li Ka-shing’s Horizons Ventures. The connected device keeps track of nutrients and other qualities of what a consumer drinks out of the cup.
  • Zonoff, yet another software platform for the smart home, raised $3.8 million in Series A investment from Valhalla Partners and Grotech Ventures.

For Josh Elman, the Greylock partner who led the investment in SmartThings, the smart home is a no-brainer. “Everything around us is smart,” he said. “We carry around these super computers in our pocket, yet our houses are still dumb.”

He believes consumers are eager to change that.

“Why shouldn’t I know that I left my garage door open after I drive away?” he said. “Why shouldn’t I know that I forgot to close the windows downstairs before going to bed? And when a pipe starts leaking, why do I have to wait until the bathroom floods before I figure that out, instead of knowing it immediately?”

But before the home gets truly smart, there needs to be a brain controlling it all. SmartThings provides a software layer that connects all the devices in the home and makes them work together. It also wants to offer personalized, value-added services based on the data generated by these devices. For instance, if a pipe is leaking, SmartThings could alert your home warranty company to come and fix it.

IoT devices in the home aren’t just about sensors. They are also about the collection of data, and how companies can analyze information and, more importantly, monetize it.

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Bernard Moon, managing director, SparkLabs Global Ventures

Source: Photo courtesy of SparkLabs Global Ventures

“If you cook at home, these are devices you will interact with many times during the day.”

Bernard Moon

Managing Director

SparkLabs Global Ventures

Elman conceded that a fully connected home is unlikely to happen tomorrow. For the most part, consumers are taking baby steps in their approach to home automation. They are not rushing out and buying dozens of gadgets. They are starting with one or two use cases, such as a smart thermostat or smart smoke detector, and seeing how it goes.

However, Elman doesn’t believe SmartThings is putting the cart before the horse in its quest to deliver end-to-end home automation. He said the race is on to deliver a complete platform, as evidenced by Nest’s recent acquisition of Dropcam, a Wi-Fi-enabled video monitoring system, for $555 million in cash.

Nest, along with Samsung and other partners, recently announced a new home automation network protocol called Thread that aims to become the main ecosystem for connected home devices and apps.

“What we’re seeing is that once someone gets one smart device, like a smart light switch, it is only a matter of months before they more than double the number of devices in the home,” Elman said. “It seems inevitable that we will all have smart homes in the future. The question is whether that will happen over the next two or three years.”

Bernard Moon, managing director at SparkLabs, believes the best entry into the smart home is through the kitchen. That’s why he invested in The Orange Chef, which is designing a line of smart cooking appliances.

“Compare Orange Chef to Nest,” he said. “How many times a day do you interact with a thermostat? Maybe once at most. But if you cook at home, these are devices you will interact with many times during the day.”

Another thing he likes about The Orange Chef is its potential business models. The company isn’t just selling connected kitchen appliances. It is gathering crucial information about how food is consumed in the home. That is valuable data that food companies would be eager to have.

Take, for example, Philadelphia Cream Cheese. “If you’re Kraft, you’d love to know how people are eating your cream cheese,” Moon said. “How much of it do they use per serving? How often do they eat it? What other foods do they combine it with? With Orange Chef, that data is suddenly available.”

Despite the opportunities, there are also some massive challenges when investing in IoT devices for the home. Will these startups deliver quality products? Will consumers want the devices? And what’s to stop a large competitor from rolling out a line of connected appliances?

“The next threat is when the bigger players come in and start pushing products through their channels,” Moon said. “That means there is market validation for what you are doing. But it also means there is a lot more competition.”

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Smart appliance

Source: REUTERS/Steve Marcus

A Belkin Crock-Pot WeMo Smart Slow Cooker ($99.99) is displayed during

SoftTech’s Clavier said that investing in the connected home is not for the faint of heart.

“It takes a ton of money to scale a device startup,” he said. “You have to secure working capital and facilities for manufacturing. And then you need to find the right mix of consumer marketing and the right distribution channels. And once the product is out there, you have to move fast and prove the value to consumers.”

In addition, there remains the security concerns and that Internet-connected appliances are susceptible to hacking.

There also concerns about product recalls, which recently happened to the Nest smoke detector.

Still, all those obstacles were not enough to dissuade Clavier from investing in smart lock maker August. Clavier believes it’s the type of product that could eventually be in every home in America because of its utility and mass market appeal.

August can send notifications to parents that their kids have returned home from school. It can also make sure the door auto-locks. And for Airbnb users, homeowners can control access for when new renters are coming to town.

August has not released its smart lock yet, so it’s unclear how successful the company will become. But VCs like Clavier are hoping their home automation investments will provide Nest-like returns.

Tom Stein is a Palo Alto, California-based contributor. He can be reached at tom.stein@yahoo.com.

This story was updated online to reflect that Samsung purchased SmartThings, which happened as the September 2014 print issue of VCJ went to press.